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You have been contracted to provide a report to KiMy’s Board of Directors which:

1. Explains the difference between the SAC1 reporting entity definition and the RCF definition.

2. Explains the distinction in the current requirements for GPFS Tier 1 and GPFS Tier 2 under the current reporting framework.

3. Explains the differences between the GPFS Reduced Disclosure Regime (RDR) and the proposed GPFS ? Specified Disclosure Requirements (SDR) and the potential impact of each of these differences on shareholders’ ability to make investment decisions about the company.

4. Explains whether KiMy will be required to prepare GPFS Tier 1 under RCF. 

5. Evaluates, taking an agency theory lens, whether GPFS Tier 1 would provide better quality information for decision making for KiMy’s shareholders than GPFS Tier 2 (SDR).

6. Evaluates, taking a stakeholder theory lens, whether GPFS Tier 1 would provide better quality information for decision making for the Victorian Government than the current SPFS that is issues.

7. Identifies the challenges that KiMy will face when it is required to prepare GFRS Tier 1 following the AASB’s adoption of the RCF, and provides suggestions on how the company could meet the challenges. 

Introduction to Kimy Limited

The company Kimy limited is a large Australian tax based company which is not listed in the Australian stock exchange .It is a family owned company managed by ten major shareholders out of which five members are also the board member. Its main business is to provide services to the Victorian Government.

As per SAC1 reporting entity definition, it means the reporting entities are all entities in which there is a reasonable assurance of the existing users to the financial statements who will rely on the general financial report of the company for information which will be beneficial for them for taking an appropriate decision regarding the scarce resources available to them.On the basis of the financial report of the entity the users arrived at the final decision whether to park their surplus fund in that particular company or not. As per SAC1 it determines who should generally prepare the financial statements –all other company can opt or choose to prepare the special purpose financial statements.(KPMG, 2019)

As per RCF reporting entity definition means an entity greater than one or a single entity but not necessarily a legal entity required, or choosesto prepare the financial statements of the company. As per RCF it determines the boundary for the activities needed to be included in the general purpose financial statements.(KPMG, 2019) 

In the year 2010, the Australian Accounting standard Board issued various standards which establish a different reporting framework and consist of two tier of reporting

  • Tier 1:Australian  Accounting Standard Board
  • Tier 2: Australian Accounting Standard Board-Reduced Disclosure Requirements.

As compared to Tier 1, Tier 2 reduces the requirement of disclosure in the general purpose financial reporting framework and also the costs associated with the preparation of the financial statements whether for profit or non profit organisation or private or public sector.(Australian Accounting Standard Board, 2019)

Tier 1 reporting is applicable for the public entities which include some specific entities too and Tier 2 is non public entities and for non profit private sector entities the choice of applying tier1 or tier 2 reporting framework rest with the management of the company.(Deloitte Touche Tohmatsu, 2015) 

GPFS reduced disclosure requirement (RDR) existing Tier 2 which reduces the disclosure forthe entire specific accounting standard. The costs of preparing and auditing the financial statement is also very low whether for profit or non profit or private or public entities.

Proposed GPFS ? Specified Disclosure Requirements (SDR) existing Tier 2, all disclosure are required to be disclosed in the financial statements of the company .All disclosure for the specific standard should be clearly disclosed like

  • AASB 101: Presentation of Financial Statements
  • AASB 107: Statement of Cash Flows
  • AASB 108: Accounting policies, changes in Accounting Estimates and Errors
  • AASB 1054: Australian Additional Disclosures
  • AASB 1048: Interpretation of Standards
  • Impairment of assets
  • Revenue
  • Income taxes

Difference Between SAC1 and RCF Reporting Entities

As the specified Disclosure requirement contains maximum disclosure about the company and its future functions and plan as compared to GPFS reduced disclosure requirement which contains only a minimal disclosure regarding the entity .These differences in disclosure influence the decision of the shareholder regarding the investment in making decision. Aslimy limited is a family oriented company who is currently preparing special purpose financial statements and is not required to lodge general purpose financial statement for the same, which reduced the disclosure requirement and makes it difficult for the shareholder to take decision for their investment decision?

General purpose financial statement under Tier 1 applies to public related and profit entities and entities who are voluntarily reporting the compliance with International Financial Reporting Standard. The Tier 1 GPFS apply the IASB Revised Conceptual Framework which includes the new definition of the reporting entity. There is also requirement of legislation and when there is accountability to the public whether public, state, federal or local government. Than in such instances Tier 1 GPFS Is applicable.( KPMG, 2018)

As Kimy Limited a large Australian public company which is not listed on the Australian Securities Exchange and is a family owned company with only ten as a major shareholder out of which five are board member .It provides a software services to the Victorian government .It looks after the Victorian public transport ticketing system. Kimy limited also a data base of other customer. As due to delay and problem with the development and implementation of the ticketing system which attracted media attention too and has got a public interest so the company Kimy limited will be required GPFS Tier 1 under Revised Conceptual Framework. 

The lens offered by agency theory revolves around the main principal and agent relationship .Agency theory is more concerned about resolving the relationship of an agent and the principal. The main issue which can arise between the agent and the principal is the conflict of interest. This is the main issue which can be witnessed in the public sector rather than the private firm. The relation is generally based on the company shareholders as owners of the firm and the agents of the company as the executives. In broad terms we can say that there is a relationship between two parties in which one is the agent and the other is the principal and both generally represents each other in day to day transactions. The principal generally hired the agent to perform the services of on their behalf. The principal delegates his decision making power to the agent .As according to the agency theory the agent is using the resources of the principal on a daily input basis and any loss arise to the agent will be borne by the principal. Sometimes the decision is made the agent which is not financially sound for the other .This lead to differences of opinion on both side and even difference in priorities and problem can arise between the two. According to the agency theory the central issue which is faced is that the company may want to expand the business to a certain level which may lead to sacrifice of the short term profitability of the business and the higher earnings in the future. However the shareholder may want the return on short term basis and can oppose the management decision. Difference in the risk tolerance level also affects the decision power between the two.  According Agency theory explains the best way how to manage and organise the relation when one party determines the work while other party performs the work. It explains how to resolve the dispute between the two as in case of the company Kimy limited. The best way to achieve the balance is to award the agent with an award or compensation from the principal side for his performance. Agency theory lens raises a very much fundamental problem in the organisation i.e. a self interest issue. This theory is based on the working out the best way for the principal and agent so that they can work together with better understanding of the same.

GPFS Tier 1 vs. Tier 2 Reporting Frameworks

According to the agency lens theory GPFS Tier1 would provide a better quality of information for the decision making purpose for kimy;s shareholder of the entity than general purpose financial statement Tier 2 (SDR)_.As the GPFS Tier 1 provides detailed information regarding the company operations and all disclosure regarding accounting standard is to be done in order to provide to the shareholders of the company .The users of the financial statements can take decision on the basis of such financial statement and can park there surplus fund to the entity on the basis of evaluation and analyses.(Vimrová, 2018) 

Stakeholder theory of lens that creating values inside and outside the organisation is very much important in order to and proper in the long run for the entity and it is also a part of doing the business. The main focus of the stakeholder theory revolves around two questions, what is the purpose of the firm? And what responsibility does the management of the entity have towards the stakeholder. Stakeholder theory sets out the relationship that management of the entity needs to create with the stakeholder of the company. Franchisees of the entity should be treated very fairly if the company wants to prosper in the long run .It is very necessary for the management of the company to value them and guide them on a reasonable interval so that they not feel alone .Employees of the company should be well paid and given bonus and increment on a timely basis. The employees should be award for their continuous support to the entity. Customer should be given a better quality product every time they shop form the store or online. They should get value for their money.(Study.com, 2019) The main purpose of stakeholder theory lens is to create as much value as possible for the stakeholders of the company. In order to sustain over the long term it is very important for every entity to provide good value and keep the interest of the stakeholder whether it is the customer of the company or the employee or the supplier of the firm.

According to the theory explained above GPFS Tier 1 would provide better quality information for decision making for the Victorian Government than the current Special purpose financial statement. As the detailed analysis of the reporting also help the company and the outsiders to have a proper information and functionality of the company. As Kimy is a large firm based in Australia not listed in the stock exchange and comprises of major ten shareholders and has got a huge contract from the Victorian government and also has a public interest in it. The company Kimy limited should a follow a detailed reporting pattern which gives a detailed analysis of the company and the future prospects and the growth information about the company.

The   challenges  that the company Kimy limited can face when it is required to prepare the financial statement of the company as per the GPFS Tier1  following the adoption of  the RCF are here in below:

  • Heavy transition costs are involved from the conversion of special purpose financial reporting to the general purpose financial reporting. The costs include employment of new staff and imparting training to staff and conducting seminar and workshop in order to make all the employee of the company aware about the new reporting requirement.
  • This will require an additional reporting and complexity to the work load. Consolidation and accounting for equity will be very much burdensome and challenging for the staff to prepare and report the same.
  • The requirement to regulate and manage as per the new reporting GPFS Tier 1 is very much burden and cumbersome. This increased the regulatory burden for the employee of the company to manage and follow.( KPMG, 2018)

The above challenges Kimy limited could meet by imparting training to staff so that they are trained enough to follow and implement the rules and guidelines. 

References: 

KPMG, 2018. Conceptual Framework for Financial Reporting. [Online]
Available at: https://assets.kpmg/content/dam/kpmg/au/pdf/2018/iasb-conceptual-framework-application-in-australia-webinar-slides.pdf
[Accessed 25 March 2019].

Australian Accounting Standard Board, 2019. Reduced Disclosure Requirements. [Online]
Available at: https://www.aasb.gov.au/Work-In-Progress/Reduced-Disclosure-Requirements.aspx
[Accessed 25 March 2019].

Deloitte Touche Tohmatsu, 2015. Reporting obligations. [Online]
Available at: https://www2.deloitte.com/content/dam/Deloitte/au/Documents/audit/deloitte-au-audit-gpfs-first-step-model-fs-june-2015-section-d-120515.pdf
[Accessed 25 MArch 2019].

KPMG, 2019. Applying the IASB’s Conceptual Framework in Australia. [Online]
Available at: https://home.kpmg/au/en/home/insights/2018/05/18ru-001-applying-iasb-conceptual-framework-australia.html
[Accessed 25 March 2019].

Study.com, 2019. What is Stakeholder Theory? - Definition & Ethics. [Online]
Available at: https://study.com/academy/lesson/what-is-stakeholder-theory-definition-ethics-quiz.html
[Accessed 27 MArch 2019].

Vimrová, H., 2018. Management Control Systems Through the Lens of the Agency Theory. [Online]
Available at: https://link.springer.com/chapter/10.1007/978-3-319-49559-0_48
[Accessed 25 March 2019].

Cite This Work

To export a reference to this article please select a referencing stye below:

My Assignment Help. (2020). The Importance Of GPFS Tier 1 For Kimy Limited, An Essay.. Retrieved from https://myassignmenthelp.com/free-samples/maa310-accounting-and-society-for-special-purpose-financial-statements.

"The Importance Of GPFS Tier 1 For Kimy Limited, An Essay.." My Assignment Help, 2020, https://myassignmenthelp.com/free-samples/maa310-accounting-and-society-for-special-purpose-financial-statements.

My Assignment Help (2020) The Importance Of GPFS Tier 1 For Kimy Limited, An Essay. [Online]. Available from: https://myassignmenthelp.com/free-samples/maa310-accounting-and-society-for-special-purpose-financial-statements
[Accessed 23 February 2024].

My Assignment Help. 'The Importance Of GPFS Tier 1 For Kimy Limited, An Essay.' (My Assignment Help, 2020) <https://myassignmenthelp.com/free-samples/maa310-accounting-and-society-for-special-purpose-financial-statements> accessed 23 February 2024.

My Assignment Help. The Importance Of GPFS Tier 1 For Kimy Limited, An Essay. [Internet]. My Assignment Help. 2020 [cited 23 February 2024]. Available from: https://myassignmenthelp.com/free-samples/maa310-accounting-and-society-for-special-purpose-financial-statements.

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